NationalNational InfluencesInfluences ononCompetitiveness:Competitiveness: TheThe TheoryTheory ofofComparativeComparative AdvantageAdvantageA country has a relative efficiency advantage in those productsthat make intensive use of resources that are relativelyabundant within the country. E.g.• Philippines relatively more efficient in the production offootwear, apparel, and assembled electronic products than inthe production of chemicals and automobiles.• U.S. is relatively more efficient in the production ofsemiconductors and pharmaceuticals than shoes or shirts.

Porter’sPorter’s CompetitiveCompetitive AdvantageAdvantageofof NationsNationsExtends and adapts traditional theory of comparativeadvantage to take account of three factors: International competitive advantage is about companiesnot countries—the role of the national environment isproviding a home base for the company. Sustained competitive advantage depends upon dynamicfactors-- innovation and the upgrading of resources andcapabilities The critical role of the national environment is its impactupon the dynamics of innovation and upgrading.

InternationalInternational LocationLocation ofof ProductionProduction3 considerations:– National resource conditions: What are the majorresources which the product requires? Where are theseavailable at low cost?– Firm-specific advantages: to what extent is thecompany’s competitive advantage based upon firmspecific resources and capabilities, and are thesetransferable?– Tradability issues: Can the product be transported ateconomic cost? If not, or if trade restrictions exist, thenproduction must be close to the market.

TheThe RoleRole ofof LaborLabor CostsCostsHourly Compensation for Production Workers, 1999 ($)Germany26.93Japan20.89U.S.19.20France19.98U.K.16.56Spain12.11Korea6.75Mexico2.12BUT, wages are only one element of costs:Cost of Producing a Compact AutomobileU.S.Parts & components7,750Labor700Shipping cost300Inventory20TOTAL8,770

Key issues:•Is the firm’s competitive advantages based upon firm-specific orcountry-specific resources and capabilities?•Is the product tradable and what are the barriers to/ costs of trade?Does the firm possess the full range of resources and capabilitiesneeded to serve the overseas market?•Can the firm directly appropriate the returns to its resources?•What transaction costs are involved?

Benefits:--Access to the resources and capabilities of another company--Learning from one another--Reducing time-to-market for innovations--Risk sharingProblems:--Disagreements & conflict between the partners. Disputesmost likely where the partners are also competitors.Benefits are seldom shared equally. Distribution of benefitsdetermined by:– Strategic intent of the partners- which partner has the clearervision of the purpose of the alliance?– Appropriability of the contribution—which partner’s resourcesand capabilities can more easily be captured by the other?– Absorptive capacity of the company-- which partner is themore receptive learner?

Benefits:--Combining resources and capabilities of different companies--Learning from one another--Reducing time-to-market for innovations--Risk sharingProblems:--Management differences between the two partners. Conflictmost likely where the partners are also competitors.Benefits are seldom shared equally. Distribution of benefitsdetermined by:– Strategic intent of the partners- which partner has the clearervision of the purpose of the alliance?– Appropriability of the contribution-- which partner’s resourcesand capabilities can more easily be captured by the other?– Absorptive capacity of the company-- which partner is themore receptive learner?

The European MNC as Decentralized Federation :• National subsidiaries self-sufficient and autonomous• Parent control through appointment of subsidiaries seniormanagement• Organization and management systems reflect conditions oftransport and communications at the time e.g. Unilever, Phillips,Courtaulds, Royal Dutch/Shell.

American MNC’s as Coordinated Federations :• National subsidiaries fairly autonomous• Dominant role as U.S. parent-- especially in developingnew technology and products• Parent-subsidiary relations involved flows of technologyand finance, and appointment of top management.e.g.Ford, GM, Coca Cola, IBM

The Japanese MNC as Centralized Hub• Pursuit of global strategy from home base• Strategy, technology development, and manufactureconcentrated at home• National subsidiaries primarily sales and distributioncompanies with limited autonomy. e.g. Toyota, NEC,Matsushita

MatchingMatching GlobalGlobal StrategiesStrategies andand StructuresStructurestoto IndustryIndustry ConditionsConditionsDegree of globalization depends upon the benefits of globalintegration versus the benefits of national differentiation.Key issues:

--How important are global scale economies?--How different are customer requirementsbetween countries?• Jet engines